Essays on empirical market microstructure and high frequency data

Abstract

The first paper examines the role of High Frequency Traders (HFTs) as Designated Market Makers. I examine the liquidity provision, the trading behavior and the risk of being picked-off by other traders. I find that HFT Designated Market Makers (HFT-DMMs) are the most prominent liquidity providers among the other designated market makers in gross terms. However, they also consume a significant part of the liquidity, so that the final net liquidity provision is close to zero. The second paper examines the influence of the bond supply, during the primary auction days, to the price pressure and liquidity in the secondary market. Using quote data from the Mercato Telematico dei titoli di Stato (MTS) we find evidence of a pronounced inverted V-Shape on the yield difference, that goes up with maximum at the auction time, and the recovers two hours after. The third paper, co-authored with L. Pelizzon, M.G. Subrahmanyam, J. Uno and D. Yuferova, examine the strategic behavior of High Frequency Traders (HFTs) during the pre-opening phase and the opening auction of the NYSE-Euronext Paris exchange. We find that HFT “come early to the party”, and enjoy it (make profits); however, they also help others enjoy (improve market quality) and do not have privileges (their speed advantage is not crucial).